Chapter 6, Problem 6.34BP

1.

To determine

Perpetual Inventory System refers to the inventory system that maintains the detailed records of every inventory transactions related to purchases and sales on a continuous basis. It shows the exact on-hand-inventory at any point of time.

In First-in-First-Out method, the cost of initial purchased items are sold first. The value of the ending inventory consists the recent purchased items.

In Last-in-First-Out method, the cost of last purchased items are sold first. The value of the closing stock consists the initial purchased items.

In Average Cost Method the cost of inventory is priced at the average rate of the goods available for sale. Following is the mathematical representation:

$\text{Weighted-average Cost}=\frac{\text{Total Cost of Goods Available For Sale}}{\text{Total Number of Units Available For Sale}}$

To Prepare: The perpetual inventory record for the merchandise inventory using the FIFO inventory costing method.

2.

To determine

To Prepare: The perpetual inventory record for the merchandise inventory using the LIFO inventory costing method.

3.

To determine

To Prepare: The perpetual inventory record for the merchandise inventory using the weighted average inventory costing method.

4.

To determine

The Company’s cost of goods sold for January using FIFO, LIFO, and weighted-average inventory costing methods.

5.

To determine

To Compute: The gross profit for January using FIFO, LIFO, and weighted-average inventory costing method.

6.

To determine

To Explain: The method that the company should use to maximize gross profit.